Tax cut flagged at time of low wage growth

It should come as little surprise, in a week where the prime minister has cancelled a parliamentary sitting week and then pulled from the ether the promise of personal income tax cuts, that voters are somewhat sceptical.

These controversial decisions came as a survey found over half of respondents have either not much or no trust in the government.

Only eight per cent of voters in the Essential Research survey said they had a lot of trust in their elected representatives.

It is unclear how Treasurer Scott Morrison will pay for the flagged personal income tax cuts and still return the budget to surplus by mid-2021 as promised.

As it is, economists are less optimistic than Treasury that wages growth can accelerate 3.75 per cent in 2020/21 and assist the budget back into the black.

Labor has accused the government of trying to create a diversion from its own political dilemmas, saying if it believed in lower taxes it wouldn't be raising the Medicare Levy across the board.

Greens leader Richard Di Natale simply described it as "fantasy land stuff" when the government also wants tax cuts for big business while promising a budget surplus.

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Morrison said he has been working on the reduction for some time, after Malcolm Turnbull let the cat out of the bag during a speech on Monday, the same day he announced that the House of Representatives would not be sitting as planned next week.

However, at this stage, there is no detail on the size of the cuts, or when they might turn up in people's pay packets, other than Turnbull suggesting it will be the focus of the next budget.

If that proves the case, it does raise the chances of an early election because it would leave little else in the kitty as an electoral sweetener for a pre-poll budget in May 2019.

Morrison concedes it has been a long time since workers have had a decent pay rise which has put pressure on household budgets.

As such, he wants people, heading into Christmas, to know there will be tax relief in the future.

Aside from some tinkering with the middle-income tax bracket last year and the removal of the coalition's deficit levy on top earners, there has not been widespread personal tax cuts for a long time.

Former treasurer Peter Costello announced across the board tax cuts in his final 2007 budget, aided by the "rivers of gold" from the mining boom, which were largely implemented under Labor.

The promise of tax relief comes at a time when wage growth is still close to its lowest level in at least 20 years.

The wage price index - the Reserve Bank and Treasury's preferred measure of wages growth - released earlier this month showed annual growth of two per cent as of the September quarter, just above the rate of inflation and ticking up from a series low of 1.9 per cent.

Economists described the result as disappointing because it included the Fair Work Commission's latest minimum wage award from July 1.

This was a 3.3 per cent pay rise - the largest since 2010 - suggesting wage growth more broadly was even weaker than the result suggested.

Such slim pickings oddly come at a time of strong employment growth, which has taken the jobless rate to a five year low of 5.4 per cent.

Reserve Bank governor Philip Lowe told an economists' dinner that weak wage growth was not isolated to Australia, with other countries also suffering from heightened competition through globalisation and technology.

But Lowe is optimistic tighter labour markets should still push up wages, "even if it takes a little longer than we are used to".

All of which suggests any tax relief will be more than welcome and the government will now be under pressure to deliver.